（预览）Google 与 Apple 避过灾难，再谈 Kpop Demon Hunters 与好莱坞，以及 Microsoft、Adobe 和 ASML 的邮件往来

Ben, how are you doing?

I’m doing okay, Andrew. Doing okay. Not as good as Apple’s doing right now, but—

Oh, boy.

I’m doing okay.

Yes. I’ve been breathing the biggest sigh of relief in the entire world. I’m happy for the folks out at Cupertino. That’s where we’re going to begin, Ben. We’re going to be hitting a lot of mail with the second half of this episode. The news has been too busy the past few weeks, so we’ve been slacking on the mailbag. We’re going to try to remedy that today.

Speaking of remedies, Ben, we’re going to start—

Oh.

What?

A segue. Wow. Look at you.

Indeed. Here we are. The resolution of what many were calling the most significant tech antitrust case of the 21st century. On August 5 of last year, Judge Amit Mehta ruled, “Google is a monopolist, and it has acted as one to maintain its monopoly.” Then, on September 2 of this year, after the wheels of justice spent 12 long months churning away, Mehta issued the remedies holding in that case.

We have a lot to go through with this opinion. I’m going to put on my anti-monopolist pants, though, and skip to the question that has been bothering me for the last several days: How in the world did Judge Mehta avoid enjoining the revenue-sharing agreements with Apple? What do you think of that aspect of the ruling? Because I’m still pretty amazed that’s where we ended up.

Well, there’s a really excellent website that has written about some of these topics. A year ago, this site had a really good post, in my estimation, talking about Google and its overall strategy of overt generosity—sort of building what I think the site recently referred to as a Google patronage network, where everyone just gets money from Google all the time, which always confused the anti-monopolist.

They held this up as evidence that Google obtains its power through payments for placement. Because if someone like Ben Thompson was right, and Google would most of the time win naturally anyway because customers prefer it, then why would it pay?

Right. Why would it give Apple 36% of its search revenue in that scenario? Yes, it’s a fair question.

Right. The reason why Google would pay is because of this ruling. The 1st reason, first and foremost, is that it just locks out any potential competition. The 2nd is, you get to a ruling like this where Google is held to be a monopolist, and generally speaking, the court has leeway in its remedy to not just stop the bad behavior but to undo the gains from the illegal behavior.

The most obvious way to do that is to end these payments. Is that unfair to Google because other companies can pay? Yes, but that’s sort of the punishment that you get.

The price of—

Or—

—being a monopolist and enjoying massive market share.

There’s no—

No, no, no, no.

There’s no crime in being a monopolist. There is a crime in acting illegally to maintain your monopoly. That is what can be undone.

Right. When I say that because you enjoy monopoly market share, there’s a limit on certain deals that you can enter into—deals that companies that are smaller, in 3rd or 4th place, can enter into freely. But because of Google’s dominance, the law imposes some limitations on what it can do. That’s the price of being a monopolist.

And it’s not illegal, per se, to be a monopolist.

Right. Judge Mehta basically said it would cause too much downstream harm to end the payments.

Mm-hmm.

That was basically his reasoning, which is the strongest possible affirmation of Google’s so-called “generous strategy,” and the strongest possible affirmation of that brilliant website’s analysis from a year ago.

Oh, that was me. I wrote that on Stratechery. This actually turned out even better than I expected, in 2 respects. Number 1, I love it when I write something that ends up being perfectly correct.

Mm-hmm.

Number 2, I love it when the—

I forgot what else I love. I’m just stuck on being perfectly correct.

Well, did the court exceed your expectations in terms of the sorts of behavior that they might proscribe?

No. The degree to which the reasoning was basically boiled down to, “Okay, I’m going to do everything I can without touching the payments,” which is basically what this case is. Well, actually, that’s not even true. The data sharing was not as aggressive as it could be. But we’re not—

Mm-hmm.

—going to touch the payments because too many companies are dependent on them.

He might as well have just taken my friendly Google article from a year ago and pasted it into his opinion. That’s basically the long and short of it. Google has paid off everyone, and the judge is like, “Everyone is too dependent on this money, so we can’t take it away.” That’s his reasoning. That’s what it is.

I don’t want to put words in your mouth from a year ago because I don’t recall verbatim what that article said, but I believe you were saying, “Look, this ruling and whatever the remedies turn out to be could be more disruptive than people realize, and may create problems in addition to the court’s proposed solution here. So I reluctantly agree that they should ban the payments.”

I think where you ended up was agreeing that the court should ban the Apple distribution agreements. Is that right?

Yeah. The payments would be disruptive. They would kill Firefox, for example. The profits of a lot of Android handset makers basically just come from Google. They make the handsets at cost, or maybe even lose money. Apple obviously has a huge profit stream.

What was so brilliant and devious about Google paying everyone off—Apple is the clearest example, which is what they’re foreclosing—is that the issue is not that they’re stopping Bing from competing or DuckDuckGo from competing. They’re removing any incentive from Apple to compete.

In that article, I went back to the Google Maps–Apple Maps situation, which was sort of a disaster for both sides in many respects. Google got a little too eager to see Android “win,” and I was very critical of that.

Mm-hmm.

That was a big issue when I first started Stratechery. I was very critical of that because I thought, “They’re being stupid.” The nature of their business is that they need to serve iPhone customers in addition to Android customers, and they’re letting the tail wag the dog.

The goal here—

Right.

Sure, Android is great, but it’s not great to the extent that you lose access to iOS customers. The most obvious example of that was the whole Maps issue. Google was being a big pain about negotiating for that. It wanted all this data, the right to put ads in, and all these various bits and pieces that Apple ultimately just walked away from and said, “Fine, we’ll build our own maps product.”

Mm-hmm.

And what happened was Google lost an extremely valuable signal—

A ton of share.

—from the most affluent customers. Apple, meanwhile, had this embarrassment of a Maps product that was terrible for ages and ages and, you know, is still not as good. Now that I go back and use it every now and then, it’s still not as good in my estimation.

It’s not as good, but guess what? I’m an Apple Maps user and always have been because Apple created a Maps app.

It’s the default.

And in an alternate timeline, I could have been on Google Maps for the last 15 years.

Right.

But at the end of the day, what we do have is competition in mapping products, at least to some extent, because Apple put in the money and made the investment to build a Maps product. The number 1 most important anti-competitive outcome of Google paying for the search placement was Apple not investing in building a competing search product.

Mm-hmm.

That’s the point: The reason not to undo it is all these downstream effects. The most absurd part of this decision by far is that Apple will not have enough money to innovate if we cut off this revenue stream.

Fewer products and less product innovation from Apple, in the court’s words, was a concern if they disrupted these agreements. I still can’t believe this really happened.

It’s unbelievable. And look, I think I have the bona fides here. No one cares about you criticizing the guy who’s ruling for the monopolists here. I have the bona fides here.

I’m sorry, but that paragraph, that statement, is so ridiculous. Apple has so much money, number 1.

2. Are you listening to yourself? Apple—it’s amazing that the judge is concerned about downstream effects and is willfully obtuse and blind to the biggest downstream effect, which is that Apple doesn’t compete. All they do—

Mm-hmm.

—is just pocket the money. The funny thing is—and I think I’m going to write about this next week. I hate always giving away some of my takes here—but Apple is obviously the biggest winner here. They continue to get—

Okay.

—$20 billion-plus a year of pure profit from Google for doing nothing. It probably behooves Apple now that this is okay. Gemini would be a great partner and a great way to build up Siri.

Yeah.

There are lots of rumors in that regard, and the biggest reason not to do it was legal uncertainty. If they can just partner with Google endlessly to do so, it makes a lot of sense. The companies get along. They’ve ironed out their Android differences from ages ago. They happily are a duopoly, sort of governing the world via smartphones.

Mm-hmm.

Google has the scale. It’s just a very natural fit. I talked about Apple partnering with Google and Gemini ages ago. The OpenAI thing will maybe end up being a diversion. That didn’t make much sense, because OpenAI is coming for Apple’s throat in the long run—

Yeah.

—in a way that Google just sort of isn’t. Apple, number 1, doesn’t need to invest in search, and now I think the argument is even more compelling that they don’t need to invest in AI. The question is, is that good for Apple in the long run? Apple is a short-term winner, and innovation at Apple, at a minimum, is a long-term loser.

Hmm. That is a fascinating secondary consequence here. They now have even more incentive to just kick the can down the road and avoid worrying about the long term and investing in the sort of AI capabilities that might be required to succeed 10 years from now in the hardware market. I hadn’t considered that.

Again, putting on my anti-monopolist pants, I spent my morning rereading this opinion and also the opinion from last August, and I’m not mad per se. Don’t put it in the newspaper that I’m mad. But just—what a gutless ruling this was.

The meanest thing I could say about this ruling is that it’s something Adam Silver would have tried to do. It’s the sort of overly cute solution. I have quotes from last summer’s ruling in our outline. I’m not going to bore the listeners with reading everything, but essentially, Google’s argument over the last couple of years was that because its deal with Apple was not an exclusive agreement and users had the ability to change their default search engine, it was perfectly legal.

The judge rejected that argument and found that users don’t, in practice, change their defaults. So a default agreement between 2 of the 3 biggest companies on Earth does, in fact, foreclose competition in the search market. After holding that these agreements were restraints of trade, he just didn’t do anything about it. It’s unbelievable.

There was also the aspect of the opinion where he cites the emergence of AI and AI companies like OpenAI and Anthropic as justification for showing restraint and caution in this moment, in 2025, but he reserves the right to revisit it a couple of years from now. He said, “So for now, I’m going to leave these agreements in place and allow Google to transact with companies like Firefox”—or Mozilla, that is—and Apple. Perhaps he’ll revisit it down the line. What did you think of that aspect of the holding?

Well, I think that’s probably the most irritating part of this holding. There are 2 parts to this. Let’s just grant that Google funds huge aspects of tech via these agreements.

Mm-hmm.

And, yeah, that’s not great. It’s killing innovation, but at the end of the day, it’s sort of like the Facebook-acquired-Instagram thing. It’s been a long time. There’s a lot of structure around this. It is very damaging to undo, and I’m amenable to that argument—that, look, the Apple part is ridiculous. Apple can afford to go without $20 billion in pure profit, given that it still makes a lot of profit elsewhere.

The Firefox angle, the Opera angle, all these sorts of things—it’s okay, fine, whatever. Let’s just grant it.

And I agree with that. If he had just enjoined the deal with Apple and allowed Google to continue paying Firefox so that Mozilla remains a going concern, I’m a Firefox user. I know I’m in the minority, but I love Firefox. Any tech that was cool in 2011 is still cool to me, so I’m pro-Firefox.

But it’s the absurdity of the Apple deal that really rankles me—

Well, but even if we—

—and amazes me.

—grant this, then the humility that’s lacking is as if every other part of the opinion is disconnected from this one point. For example, he says competitors get access, which he takes care to include AI companies, so that’s good. They get access—

Mm-hmm.

—to the Google search index. But they don’t get access to the data Google’s collected, just a list of basically every webpage and what they all are, and they get access 1 time.

Yeah.

The idea is that they don’t get a benefit from Google’s investment in web crawling and all those sorts of things. They can get a head start in building the index. They get access to the long tail, but they have to actually build their own crawlers, and they have to go find these sites and make sure they’re updated and all those sorts of things.

Again, in isolation, I get the idea. It’s not like other companies have a right to Google’s capabilities and what Google has spent to build all these sorts of things.

Mm-hmm.

The problem is when you take the opinion as a whole. The implication of allowing Google to continue to make these payments is that it’s going to continue to dominate this space because it can afford to pay more than anybody else. It has the largest apparatus, the largest engine, and competing on an even playing field, given where we are, means Google is going to win and dominate, which means—

Yeah.

—they are going to have more ongoing funding and capabilities to do the web crawling and all those bits and pieces.

On the one hand, yes, I get that people can get a start using what Google has done, but they don’t get a benefit from Google on an ongoing basis. That is in tension with Google basically getting to maintain its position on an ongoing basis. So if you’re going—

Mm-hmm.

—to let these payments go on, I think the judge should have been much more generous in terms of saying, “Okay, other people get to, quote-unquote, ‘free ride’ off of Google’s capabilities,” or whatever it might be.

Whereas if you’re cutting off the payments, it’s like, okay, we’re cutting it off. Google has to compete on an even playing field. Everyone else gets to jump ahead to the Google search index and all these bits and pieces that you can plug into, and now we’re starting fresh. By the way, Google is limited in payments because that’s punishment for what they did.

That is cogent, and it’s also cogent to say it’s a free market for payments. Google can pay, but we recognize that it has this massive advantage, so you get to get some free riding on it on an ongoing basis. Instead of choosing from column A and column B, it’s not going to accomplish anything.

That’s the thing. This is not going to accomplish anything. On the AI front, Meta wrote:

“The court thinks allowing Google to continue making payments is more palatable now than when the liability phase concluded. Then venture funding in internet search was considered Silicon Valley’s biggest ‘no-fly zone.’ Today, established technology companies are making and startups are receiving hundreds of billions of dollars in capital to develop gen AI products that pose a threat to the primacy of traditional internet search.”

So basically, the emergence of AI at least gave Judge Mehta some justification here to side with Google—or, I guess, to offer Google a reprieve and Apple a reprieve. But the hundreds of billions of dollars being poured into AI aren’t being poured into AI to directly compete with Google. I think that’s sort of a misunderstanding of the ecosystem and—

I disagree.

—the opportunity that people see. We’ll talk about it later in the show—

Yeah.

—for sure.

I think this is valid. The reality is that we can’t have it both ways. We’ve talked plenty on this podcast about the threat that LLMs, OpenAI, and ChatGPT—

Yeah.

—pose to Google.

We’ll talk about it later in the show—

Yeah.

—for sure.

I think this part is valid, but it gets to my second point with the judge’s decision, where I do think it’s really important—and the judge talks about this—not to let Google or any other monopoly…

I'm skeptical in general. Even if Google could cut the payments, is Google still going to be the default? Basically, you are really just hurting downstream. Most people are probably still going to use Google. Apple is probably still going to make Google the default, just because people might riot if they put Bing or something else.

It's really hard to displace an aggregator. That's obviously a core thesis of Stratechery. But I don't want the aggregator to be able to leverage that into a new area. And there is a capability Google has, which is basically to ground Gemini, where Gemini gets access to the Google Search index in a very optimized and streamlined way.

And the judge is like, "Well, this service is available on Vertex AI, Google's AI platform, and people can build on there and get access to it." Why not force Google to have an API to that service that anyone can access, so they can ground their search results on the Google index going forward? That prevents Google from leveraging Search into a dominant position in AI.

All right, and that is the end of the free preview. If you’d like to hear more from Ben and I, there are links to subscribe in the show notes, or you can also go to sharptech.fm. Either option will get you access to a personalized feed that has all the shows we do every week, plus lots more great content from Stratechery and the Stratechery Plus bundle. Check it out, and if you’ve got feedback, please email us at email@sharptech.fm.